Newshub18 :Why China does not ban Taiwan’s chip industry?

China has imposed trade sanctions on Taiwan over US House of Representatives Speaker Nancy Pelosi’s visit to Taiwan. The country will not import citrus fruits and fish from Taiwan. They will not export sand from their own country. China’s military has fired multiple missiles near Taiwan on Thursday. Chinese warships are conducting exercises around Taiwan. But Beijing has managed to avoid the restrictions on Taiwan’s most valuable export, the microprocessor chip industry. It probably depends as much on China’s exports of critical parts to Taiwan as the island itself does. For Beijing to target this industrial sector in Taiwan would cause significant damage to itself.

How important is the processor manufacturing chip industry to Taiwan?

Taiwan dominates the world in chip and critical component manufacturing for processors. These chips are used in everything from smartphones to medical devices, cars and fighter jets.

According to TrendForce, a technology global market reviewer, Taiwan accounts for 64 percent of the global processor chip industry’s revenue. And Taiwan Semiconductor Manufacturing Co (TSMC) earns more than half of this 64 percentTaiwan produces 92 percent of most modern processor chips, according to Boston Consulting.
Officially recognized by only 13 countries and the Vatican, the importance of this industry to the economy and security of the island region of Taipei goes without saying.

The industrial sector now accounts for 40 percent of Taiwan’s total exports as demand has grown year after year. And the income of this industrial sector is 15 percent of the total domestic product. James Li, an assistant research fellow at Taiwan’s Academia Sinica, told Al-Jazeera that Taiwan’s processor manufacturing industry is important for its economy. Taiwan has positioned itself as a leader in this industrial sector and the fourth industrial revolution will depend on these chips, which can be designed and manufactured by Taiwanese companies.

He also said that this processor manufacturing industry is important for Taiwan’s security. Because it increases Taiwan’s strategic importance to other countries, especially the United States and Western Europe.
While Beijing’s ban on Taiwanese citrus fruits and fish is expected to have minimal impact on the country’s economy, a ban on chip imports could do much more damage.

Why does China need Taiwan-made chips?

As much as Taiwan is dependent on its own processor chip manufacturing industry, so is China. According to a 2020 Congressional Research Service report, chip demand in China, the world’s second-largest economy, accounts for 60 percent of global demand. More than 90 percent of that demand is through imports and production by foreign firms in that country.

Despite investing hundreds of billions of dollars in the development of this industry, China’s share in the global chip manufacturing market, led by Shanghai-based SMIC, is less than 10 percent.
Li said, China is dependent on Taiwan in this industry. Because Chinese companies can design chips but their ability to manufacture them is limited. In particular… it was recently reported that SMIC has achieved 7-nm chip production capability. Although it is very early stage and they are far behind TSMC and SamsungChina has been accused of putting economic pressure on other countries and imposing restrictions but not including its own essential products.

For example, China suspended the import of beef, wine and barley from Australia in 2020 due to the dispute regarding the origin of Corona. But at that time they continued to import iron ore to supply raw material for steel making.
Will China target Taiwan’s chip industry in the future?
It is not certain how long Taiwan will be able to maintain its dominance in this industry. Chinese President Xi Jinping has called reliance on foreign technology a “terrible danger” facing the country. At the same time, he promised to increase self-reliance in this sector.
As part of the ‘Made in China’ initiative, Beijing has pledged to invest $1.4 trillion in high-tech industries, including chip manufacturing, between 2020 and 2025.
In 2020 alone, such companies received 227.6 billion yuan ($33.7 billion) of investment in China, according to Technode research; Which is four times more than the previous year.
China’s integrated circuit (IC) production rose to 359.4 billion units last year, according to official data. Which is 33.3 percent more than the previous year.

James Lee, assistant research fellow at Taiwan’s Academia Sinica, said, “I think China will ban Taiwan’s chip manufacturing industry now.” Because they are dependent on Taiwan in this sector. When China can become self-sufficient in this field, they may change their position. But it will take much more time to reach that stage.
China’s efforts to become self-sufficient in this industry have not been successful. For example, Richard Chang Rugin, founder of SMIC, identified talent shortage as the reason for lagging behind in this sector.

Most recently, the industrial sector has been rocked by a series of arrests of high-ranking figures linked to the 100 billion yuan National Integrated Circuit Industry Investment Fund corruption scandal. Zhao Weiguo, a former senior official at troubled chipmaker Tsinghua Unigroup, was arrested last month following an investigation. The company filed for bankruptcy in July last year.
“I think they will stop importing chips when they are ready for war,” said Henry Gao, a China trade expert at the Singapore Management University, referring to China’s sanctions against Taiwan.
He also said that developing the capacity to make processor chips is very difficult. Many of their previous attempts have failed, as seen in recent arrests of people involved in this industry